SocGen Strategist Warns of ‘Global Financial Market Armageddon’ as Japanese Yields Surge
Surging JGB Yields Threaten Yen Carry Trade and U.S. Market Stability
Societe Generale’s veteran strategist Albert Edwards has sounded a stark warning, describing the recent spike in Japanese government bond (JGB) yields as a potential catalyst for a “global financial market Armageddon.” Edwards, known for his bearish outlooks, argues that a rapid rise in long-end JGB yields is now threatening to unravel one of the financial world’s most critical funding mechanisms — the yen carry trade — with potentially destabilizing consequences for global equity and bond markets, particularly in the United States.
In his Thursday client note, Edwards highlighted how the sustained rise in Japanese long-term bond yields is already beginning to disrupt global capital flows, particularly those that were fueled by Japanese investors seeking higher returns abroad. With the yield advantage of foreign assets narrowing due to domestic rate hikes in Japan, the unwinding of the carry trade could prompt a mass exodus from U.S. Treasuries and equities.
Highlights:
SocGen’s Albert Edwards warns of “global financial market Armageddon.”
Yen carry trade at risk as Japanese bond yields surge.
U.S. equities and Treasuries vulnerable to reversal of Japanese capital flows.
Japanese long-end yields now a critical global market indicator.
BOJ’s Policy Shift and Sticky Inflation Prompt Bond Market Turmoil
The Bank of Japan’s evolving monetary stance is seen as a key driver behind the turmoil. Unlike in past years, the BOJ is now stepping back from its ultra-loose monetary policy by reducing its bond purchases and allowing holdings to roll off its balance sheet. This policy change, fueled by persistently high inflation, has removed a major buyer from the Japanese bond market, opening the door to volatility and a repricing of long-term interest rates.
Inflation, which had once been elusive in Japan, has become “sticky,” prompting BOJ policymakers to gradually raise rates and scale back quantitative easing. The result has been a sharp upward move in JGB yields, particularly on the 20-, 30-, and 40-year bonds. According to Edwards, this shift is not a temporary blip, but a long-term structural change that may force global investors to reassess asset valuations.
Highlights:
BOJ withdraws bond market support as inflation persists.
QE rollback removes key buyer, pushing JGB yields to record highs.
Long-end yields (20Y–40Y) rise sharply, triggering global repricing.
Japanese inflation now entrenched, forcing BOJ to exit ultra-loose policy.
Japan’s Role in Global Financial Liquidity Now Under Scrutiny
Albert Edwards emphasized that the surge in Japanese bond yields could trigger the collapse of inflated U.S. asset prices, as Japanese investors — historically a dominant force in global capital markets — repatriate funds. He cited previous examples, including the 6% drop in the S&P 500 in mid-2024, which followed an unexpected BOJ rate hike.
Edwards argued that Japanese quantitative easing (QE) has been pivotal in maintaining high valuations in U.S. stocks and other global assets. With that liquidity now being siphoned back to Japan amid rising domestic yields, a sharp sell-off in U.S. markets could ensue. He noted that foreign ownership dominates the JGB market, and with BOJ’s retreat, further upward pressure on yields is likely.
Highlights:
Japan’s monetary tightening may force repatriation of capital.
Edwards: JGB surge could “suck liquidity” from U.S. markets.
July 2024 S&P 500 drop cited as a precedent for market shock.
Japanese QE seen as cornerstone of U.S. asset bubble, now under threat.
Strategic Warning: Monitor Japan’s Bond Market Closely
In a broader strategic message to investors, Edwards urged heightened vigilance over developments in Japan’s bond market, calling it the “number one most important thing” to monitor. He reiterated his long-standing view that major financial disruptions often originate in Japan, as seen during the tech bubble’s initial collapse in the late 1990s.
The warning reflects a growing consensus among global strategists that Japan’s domestic monetary shifts are no longer isolated but deeply interlinked with global financial stability. With the yen carry trade unraveling and foreign investors on alert, JGB yield spikes could become a trigger for wider market correction if capital outflows from U.S. assets accelerate.
Highlights:
Edwards: Japan’s bond market is now top global risk for investors.
Historic precedence for market shocks starting in Japan.
Rising JGB yields could accelerate global asset revaluation.
Yen carry trade unraveling seen as immediate liquidity threat to U.S. markets.
